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© AML Accelerate Pty Ltd

MONEY LAUNDERING &

TERRORIST FINANCING (ML/TF)

RISK ASSESSMENT

METHODOLOGY

December 2018

Page 1 of 30 © AML Accelerate Pty Ltd

GENERAL INFORMATION

About this document

This document forms part of the AML Program Manual provided by AML Accelerate, which has been designed to address and enable compliance with relevant AML/CFT legal and regulatory obligations.

This document should be read in conjunction with the following related documents, which form

components of the AML Program Manual: Company Information which contains contextual information relating to our organisation; ML/TF Risk Assessment which contains the outputs of a structured process of identifying and assessing money laundering and terrorist financing (ML/TF) risks and the controls in place to manage and mitigate the ML/TF risks an organisation may reasonably face; AML Program which contains the approach to addressing the relevant AML/CFT legal and regulatory requirements for a type of business; Customer Due Diligence (CDD) Standards which contains the type and extent of due diligence undertaken on customers, based on their legal form and their assessed level of

ML/TF risk; and

Appendices which contains a glossary of key terms, a list of reference materials used in the preparation of the AML/CFT Program Manual, and other supporting information and documents. The AML Accelerate platform also provides the ability to create a supporting AML Operating Manual. Where an AML Operating Manual has been created, it should be read in conjunction with the documents contained in the AML Program Manual.

Disclaimer

terms of use and, if applicable, the end user licence agreement. Prior to publishing the results or making use of the AML Accelerate platform or any of the compo strongly recommended that such Materials are reviewed by your professional advisers to ensure they Accelerate platform and the Materials contain statements of opinion as at the date on which they are made, and do not constitute statements of fact or amount to any legal or other professional advice.

In deciding to make use of the AML Accelerate platform, you are not relying on the accuracy, reliability

or factual correctness of the AML Accelerate platform or the Materials. Financial Crimes Consulting

Pty Ltd accepts no liability, and provides no warranties, as to the applicability of the AML Accelerate

result of you making use of the AML Accelerate platform or the Materials. You make use of the AML Accelerate platform and the materials at your own risk and in your sole and absolute discretion.

Page 2 of 30 © AML Accelerate Pty Ltd

1. Money Laundering and Terrorism Financing (ML/TF) Risk

Assessment

Purpose of the ML/TF Risk Assessment

Risk management is the process of identifying risk and developing policies and processes to minimise and manage that risk. This requires the development of a process to identify, assess, prioritise, mitigate, manage and monitor risk exposures.

Money laundering (ML) or terrorist financing (TF) risk is the risk that an organisation, or a product

or service offered by an organisation, may be used to facilitate ML/TF). It is unrealistic that an organisation would operate in a completely risk-free environment in terms of ML/TF. Therefore, an organisation should identify the ML/TF risks it may reasonably face, then assess the best approach to reduce and manage those risks. being used by money launderers and terrorist financiers. To ensure completeness, consistency and accuracy of the assessment of ML/TF risks, AML Accelerate has developed this ML/TF risk assessment methodology, which forms part of the AML

Program Manual.

Page 3 of 30 © AML Accelerate Pty Ltd

2. ML/TF Risk Assessment Methodology

General

This ML/TF risk assessment me

matter experts based on domestic and international ML/TF risk assessment methodologies, as well as industry and regulatory guidance. The methodology also leverages international risk management standards, including ISO31000. The methodology has been designed to enable organisations, using the AML Accelerate platform, to comprehensively identify and assess ML/TF risks by responding to a series of pre-defined questions, which generate an enterprise level ML/TF risk assessment for an organisation. Once ML/TF risks have been identified and assessed, it is the responsibility of the organisation to develop, operationalise and continually monitor mitigating systems, processes and controls to effectively manage ML/TF risks. These mitigating systems, processes and controls are set out in the AML/CFT Program and Customer Due Diligence Standards, which form part of the AML Accelerate AML Program Manual. This ML/TF risk assessment methodology defines each risk dimension used in the AML Accelerate ML/TF risk assessment, considering the following dimensions of ML/TF risk:

Environmental Risk:

Predicate criminal offences;

Money laundering;

Terrorist financing;

Targeted financial sanctions; and

Regulatory compliance

Customer Risk:

Customer location;

Customer business activities;

Politically exposed persons (PEPs);

Customer legal form;

Business Risk:

Business operations;

Outsource AML/CFT controls; and

Employees

Channel Risk:

Face to face customer engagement; and

Third party customer engagement

Product Risk:

Product or service flexibility; and

Products defined as higher ML/TF risk

Country Risk

This methodology explains how each sub-risk factor within each of the risk dimensions (as set out above) is identified and assessed to determine the level of ML/TF risk for an organisation. The methodology also provides definitions used as part of the AML Accelerate ML/TF risk assessment.

Page 4 of 30 © AML Accelerate Pty Ltd

Inherent and residual ML/TF risk

This methodology assesses both the inherent ML/TF risk and residual ML/TF risk: Inherent ML/TF risk is the outcome of an assessment of the likelihood of a risk occurring and the impact of the risk, were it to occur. Inherent risk is the risk before controls applied to mitigate the risk being assessed; and Residual ML/TF risk is the outcome of an assessment of the identified inherent risk after the existence and operational effectiveness of controls that have been put in place to mitigate that risk being assessed have been taken into consideration.

Inherent and residual risk definitions

The AML Accelerate risk assessment methodology defines the criteria for rating both the inherent and residual risk, as well as consistent criteria for assessing the effectiveness of controls as:

Inherent Risk Rating (IRR)

Significant Major ML/TF risk.

High Serious ML/TF risk.

Medium Moderate ML/TF risk.

Low Minor or negligible ML/TF risk.

Control Assessment

Excellent Highly effective controls. Controls in place are state of the art controls

necessary to mitigate the risks, and the controls appear to be working highly effectively at mitigating the risk.

Adequate Effective controls. Controls in place are the right controls necessary to mitigate the risk and the controls appear to be working sufficiently. Poor Ineffective controls. Controls in place but not the right controls necessary to mitigate the risk, or the controls appear not to be fit for purpose. No

Control/

Not Tested

No controls in place or the effectiveness of the controls in place have not been tested.

Residual Risk Rating (RRR)

Significant Risk almost sure to occur and/or to have major consequences and inadequate controls in place to mitigate the risk. High Risk likely to occur and/or to have serious consequences, and adequate controls in place. Medium Possible this could occur and/or have moderate consequences, and adequate or excellent controls in place. Low Unlikely to occur and/or have minor or negligible consequences, and adequate or excellent controls in place.quotesdbs_dbs2.pdfusesText_2